Description

Tessenderlo is a business with good management, decent returns and a catalyst.

Let me start with the catalyst … so in IFRS one deals with stock buybacks differently than in GAAP. In GAAP, if a company buys back 1 million shares and has those shares as the companies property it is allowed to lower its published outstanding shares by 1 million shares in its filings. In IFRS you are not. Only post the actual cancellation of the shares is a company allowed under IFRS to publish a lower total outstanding share count. So due to the transaction where Tessenderlo bought Picanol, an entity owned 100% by Picanol came with 20,860,003 Tessenderlo shares. So currently in filings it states that Tessenderly today still has 84,389,759 in total shares outstanding, but in reality the true number of shares outstanding is 62,529,756 shares if I adjust for these shares that are 100% owned in a sub 100% owned by Tessenderlo. Management has already indicated they plan on cancelling this group of 20.86 million shares somewhere in the second half of 2024. The reason for the delay is taxes. Once the tax issue is out of the way they will organize the cancellation of the shares. Management has already expressed multiple times they should be able to cancel these 20.86 million shares by the end of the year 2024.

Anyway, currently it shows that the book value per share for Tessenderlo is 22.88 Euro. But the look through book per share post the planned cancellation of these 20.86 million shares is 30.88 Euro, or a delta of 8 euro per share. If you run some screen using book value per share below 1 you don’t get Tessenderlo served up.

In addition to the 20.86 million shares that will be cancelled this year, Tessenderlo recently changed its buyback plan and is planning on buying back up to 2.3 million shares at a maximum cost of 30 Euro per share or a total of 69 million Euro. As of the last filing on July 22 2024 Tessenderlo owns 1,317,892 shares. They cancel these shares that were just bought back on a yearly basis. So if I assume these shares are cancelled too on top of the 20.89 million shares mentioned before, then I get to a look through book value per share of 31.54 Euro. So based on the current stock price that gets me a price to book of 24.1/31.54 = 0.76.

Tessenderlo has bought back about 1.25 million shares in 2024. So on average about 44.5K shares a week. Tack clearly thinks that the Tessenderlo stock is cheap around this price and he generates enough free cash so he can continue to this pretty much until the last share in the float is purchased. Now I do expect that above 30 Euro per share he will slow down buybacks.

So lets now discuss the float. So Tack and a co investor own 40.56 million shares and the rest of the float is 19.3 million shares at this time. (See through outstanding is 61.21 million shares)

So what about Tack, the CEO. He is a great manager with a great history. In 2009 after running a number of companies successfully he got involved in Picanol, a struggling producer for machines for the clothing industry. He immediately realized Picanol was behind tech wise. He increased the R&D budget and within years Picanol was back at the top technologically. Then in 2013 he got involved in Tessenderlo and turned that company around. It was quit the mess when he arrived and he quickly streamlined things and started again an aggressive investment plan. He is pretty focused on ROIC and if he sees good opportunities he will act. He has a bias towards investing in the businesses. He doesn’t cater proactively to Tessenderlo investors and rather focuses on operations.

Now on the negative side, he had Tessenderlo buy Picanol at a valuation that was elevated. It seemed he wanted to use Picanol to increase his stake in Tessenderlo, while at the same time simplifying the reporting structure.

So why did the stock sell off.

• The buyout of Picanol annoyed shareholders.
• The T-Power electric power plant contract will not be renewed at the end of 2026.
• After high prices that lead to a jump in revenues and EBITDA in 2022 overall caused by supply chain issues, 2023 saw a reversion downward.

Tessenderlo is a holding company for a number of businesses. You can find a detailed overview in the annual. There is Agro, Bio Valorizations, Industrial Solutions, Machines and Technologies and T-Power.

All these businesses have struggled in 2023 versus 2022, but Agro was hit hardest. Agro saw a large jump in pricing in 2022 while at the same time Agro struggled to get access to Potash due to war in Ukraine. So it had to find Potash in another place. They found it near Vancouver and now ship it to Europe. That cost about Agro about 90 million in Ebitda. Then we also lost 70 million in Ebitda versus 2022 in Bio Valorization. In total these negative trends in 2023 brought down Ebitda to 318.7 million versus 467 million Euro. So Tessenderlo lost about 300 million in revenue and Ebitda of about 150 million Euro in 2023 versus 2022.

So based on depressed 2023 numbers Tessenderlo trades at an ebitda multiple of 4.5. Now if I adjust the Ebitda with maintenance free cash, then I get Ebita minus maintenance capex of about 219 million. Or a multiple of 6.7 times. I think we will see Ebitda starting to improve in the second half of 2024 and in 2025. (I am using post cancellation total number of shares = 61.2 million)

Concluding: At a multiple of about 7 times ebitda minus maintenance capex and at a price to book (look through book) of 0.76 times book per share I think Tessenderlo is cheap and has decent upside. Once the shares above are actually cancelled will we see the real book per share. And the multiples to Ebitda will suddenly adjust too. (I am using post cancellation total number of shares = 61.2 million)

Risk:

• I think the first half of the year numbers will come out later in August and I am not expecting a rebound yet in Ebitda.
• What is the value of T-Power. It is not because Rewe did not renew the contract with T-Power, a contract to end and the end of 2026, that T-Power is of no value. I do find it hard to put a value on the asset though. T-Power will be able to sell electricity still post 2026. But from a shortage of electricity, we have now gotten to an excess of electricity production in Belgium and surrounding countries. We now have many days where in summer in the afternoon we have negative pricing for electricity. Now there will still be times where there will be a need for nat gas utilities, but it will not be a regular business. Only when we have no wind or no sun will there be need for this plant. And if we can again get so lucky that the French fleet of nuclear plants goes down again, then T-Power will be printing money.

Catalyst:

• Cancellation of 20.9 million shares out of 84 million shares, in addition to about 2 million shares in current buyback plan that will likely be cancelled before the end of 2024.

Catalyst

Cancellation of 20.9 million shares out of 84 million shares, in addition to about 2 million shares in current buyback plan that will likely be cancelled before the end of 2024.